Debtors could be given six-week breathing space

Creditors could be forced to give those with problem debt a six-week interest holiday to give them a chance to get their finances in order, the government has announced.

Under the plans, those in serious problem debt may apply for legal protection from further interest, charges and enforcement action for a period of up to six weeks. Where appropriate, they would be offered a statutory repayment plan to help pay back their debts in a manageable way.

Problem debt is where debt and arrears absorb an excessive proportion of income. This typically arises from an income ‘shock’, such as sudden loss of employment and can place a heavy burden on individuals and families.

This can lead to a downward cycle of debt dependence and growing debt burden and, as a result, is often linked to other difficulties including worklessness, stress, and mental health issues.

According to StepChange, mounting personal debt in the UK is costing the British economy an estimated £8.3bn each year.

The charity, which gives free advice on overcoming debt problems to those in financial difficulty, estimates that by offering more help to those with problem debt, the government could save around £3bn each year.

The Protocol aims to encourage parties to communicate issues at an early stage and resolve the matter without the need to start court proceedings. This should keep costs reasonable and proportionate to the amounts involved.

These steps provide another level of protection to debtors, but could make the process of recovering unpaid invoices more cumbersome for creditors.

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